Ex-Ante Regulation of Digital Platforms in Latin America (or, the ‘Regulatory Reconquista’)
TL;DR
Background: As many policymakers, regulators, and competition agencies around the world rush to introduce digital competition regulations (DCRs) inspired primarily by the European Union’s (EU) Digital Markets Act (DMA), Latin American policymakers and agencies have proven no exception.
Brazil ostensibly leads the region’s regulatory arms race with its Bill No. 2768/2022, currently under discussion in the Brazilian National Congress, although the government has recently indicated it may opt for an as-yet-undefined “more flexible approach.” Similar proposals have been floated in Mexico and other jurisdictions.
But… The case for ex-ante regulation of digital platforms is weak in Latin American markets, which do not currently suffer from a general lack of competition. Indeed, Latin America has significantly more pressing social problems to address, including infrastructure and education, among others. Rather than enable a swift “regulatory Reconquista” of European-inspired regulation, Latin America should follow its own path.
KEY TAKEAWAYS
Should Latin American Policymakers Follow the European Example?
European law has long influenced legislation in Latin America. The enactment of the EU General Data Protection Regulation (GDPR) in 2016, for example, resulted in a proliferation of data-privacy laws across Latin America that were substantially similar to the GDPR. This transpired despite mounting evidence that the GDPR has hindered venture-capital investment in Europe and that it contributed to increased market concentration. More recently, and due in part to broader geopolitical considerations, the EU has looked to bolster its influence across the region by touting the benefits of digital competition regulations like the DMA.
Various Latin American policymakers and agencies have made clear their interest in following this path. The Andean Community, for instance, is considering specific regulations for digital markets.
In Mexico, the Federal Economic Competition Commission (COFECE) published a digital-strategy plan that included creating a Digital Markets Competition Unit similar to the United Kingdom’s Digital Markets Unit.
Brazil’s Bill No. 2768/2022 remains under discussion in the Brazilian National Congress, although the government has proposed taking a “more flexible approach.”
There is little evidence, however, that insufficient competition is a significant problem in Latin American digital markets. While there may be some reasonable concerns about competition in the digital economy, competition concerns (i.e., strategic barriers to entry imposed by a dominant incumbent) aren’t the primary constraint on the use of digital services and products in the region. Most who have studied the region identify far more fundamental problems, such as infrastructure, quality of access and use, and education.
According to the Organisation for Economic Co-operation and Development (OECD), for example, “[l]ess than half of Latin Americans have used a computer or have sufficient skills to use computers for basic professional tasks (…) [and] Only 8% used computers for programming.”
Latin American Digital Markets Are Competitive
While there are few comprehensive assessments of the state of competition in Latin American digital markets, studies of such markets as e-commerce, fintech, and ride-hailing platforms demonstrate consistent growth and relatively frequent and easy entry.
For example, there is empirical evidence that Amazon not only faces competition across the region but that it competes intensively with other distribution channels and has had a net-positive welfare effect for consumers. Indeed, while Amazon is often accused in various markets of being a monopolist, in Latin America, it often finds itself the underdog against the regional unicorn Mercado Libre and other local incumbents.
One recent report on Latin America and the Caribbean found that “(a)s of August 2022, there were 893 B2C or C2C online marketplaces in the LAC region, accounting for 2,876 websites (URLs).” The recent entry of such competitors as Shein suggests that Latin American e-commerce markets remain highly competitive. Moreover, there is a substantial margin for expansion, which suggests that demand could grow even more.
Existing Latin American Competition Law Is Up To the Task
The above does not mean that anticompetitive conduct cannot arise in digital markets. In those cases, however, competition law should be sufficient to deter conduct that is harmful to competition and consumers.
Some critics of traditional competition law argue that it suffers from the alleged failures of being “too slow” and “too hard” for plaintiffs. This, such critics contend, is sufficient justification to promulgate ex-ante digital competition regulations like the DMA.
But despite the alleged “technical challenges” that digital markets present to antitrust-law methodology and procedures, traditional competition-law tools are, relatively speaking, much better suited to address any possible competition issues than ex-ante rules. For instance, competition law is more flexible and is able to consider more pieces of relevant information.
Despite the relatively small number of cases brought by competition agencies in Latin America, there have been several notable ones that allow us to conclude that, as in the EU, the existing antitrust laws can be used to address the same kinds of conduct that are targeted by digital competition regulations.
Addressing the Real Bottlenecks for Latin American Digital Markets
If the goal is to improve Latin America’s digital markets and deploy them in service of growth and productivity across the region, there are more important reforms that should be under consideration. To start, policymakers should explore ways to attract more existing digital-market firms to invest in the region and should facilitate the creation of new ones. While legal reforms are indeed needed to accomplish that goal, the focus should be on implementing proper “rule of law” mechanisms, removing regulatory barriers, improving access to infrastructure, expanding the breadth of telecommunications networks, and providing better access to education—both in general and specifically with regard to the skills needed to use digital products and services.
For more on this issue, see the ICLE white paper “¿Ex Ante Regulation of Digital Platforms in Latin America (or, the “Regulatory Reconquista”)?” by Mario Zúñiga.